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When 2 Percent Isn't 2 Percent

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May 30, 2017

Governor Andrew Cuomo describes the Enacted State Budget for Fiscal Year 2018 as continuing his record of holding State Operating Funds spending annual growth to no more than 2 percent. This appears correct because some spending has been shifted from one year to another, and other types of spending have been reclassified so they no longer count as state operations. When accounting for these adjustments, the actual growth in State Operating Funds spending for fiscal year 2018 is 3.7 percent.

Source: New York State Division of the Budget, Enacted Budget Financial Plan (annual editions for 2017 and 2018), New York State Division of the Budget, Executive Budget Financial Plan (2018), and Office of the New York State Comptroller, Report on the Enacted Budget (annual editions for 2017 and 2018).

What is Being Measured?

State Operating Funds (SOF) spending is a measure of cash disbursement for operations and debt service supported by State revenues; it excludes capital investments and spending supported by federal aid. This measure best reflects State policy choices about the use of its own resources for current services and programs.1 Accordingly, the Governor’s efforts to control spending have focused on limiting SOF spending growth to no more than 2 percent annually.

The Enacted Financial Plan reports 2 percent SOF growth from fiscal years 2017 to 2018, but consistently tracking spending between the two years indicates the growth is greater. This analysis corrects year-to-year spending for adjustments of two types – shifting cash disbursements between fiscal years (Table 2), and shifting state operating spending to “off budget” accounts or otherwise reclassifying it (Table 3).

Shifting the Timing of Spending

The largest adjustment comes from making debt service payments earlier than previously planned. This practice does not have any impact on total debt service costs, but increases spending in the year the prepayment is made and reduces it in the subsequent year, thereby causing the growth rate from year to year to appear lower. Debt service prepayments lowered spending and spending growth in both the fiscal years 2017 and 2018 budgets.2 In addition to prepaying debt service, the fiscal year 2018 budget also delays loan payments due to the New York Power Authority, deferring $193 million in payments to future years, thereby lowering spending in 2018.

Table 2: State Operating Funds Spending Shifted to Different Years
(dollars in millions)

Savings/(Costs)

FY 2017

FY 2018

Net Debt Pre-Payments

$219

$490

NYPA Repayment

$0

$193

Workers Comp Prepay

$37

$0

TOTAL

$256

$683

Source: New York State Division of the Budget, Enacted Budget Financial Plan, (annual editions for 2017 and 2018), and Office of the New York State Comptroller, Report on the Enacted Budget, (annual editions for 2017 and 2018).

Shifting Expenditures Out of State Operating Funds Spending

Approximately $210 million was shifted out of SOF spending in fiscal year 2017, and almost $1.4 billion is being shifted in fiscal year 2018. The largest shift relates to the School Tax Relief (STAR) program. In fiscal year 2018, almost $830 million will be excluded from SOF spending because STAR benefits are changing from a spending program to a tax credit. Taxpayers will receive the same net benefit, but SOF spending growth appears lower.3 Other substantial changes include shifts in workers from payrolls in the general fund to those paid by capital funds, reclassifying the Sales Tax Asset Receivable Corporation (STARC) funds from a miscellaneous receipt to an offset against spending, and shifting expenses off-budget as shown in Table 3.

These kinds of spending shifts obscure the true rate of growth and provide no financial or programmatic benefits. If a shift in accounting methodology is warranted to more properly reflect spending, then an adjustment should be made when calculating spending growth to avoid giving the impression that total expenditures have decreased when they have not.

Table 3: Spending Shifted Out of State Operating Funds
(dollars in millions)

Savings/(Costs)

FY 2017

FY 2018

STAR Adjustments

$191

$827

Workforce Fund Shifts

$227

Reclassify STARC recapture

$200

Use of Tobacco Settlement Funds (off-budget)

$97

NYSERDA shift (off-budget)

$20

$20

Mortgage Insurance Fund Payment to City of Albany (off-budget)

$13

TOTAL

$211

$1,383

Source: New York State Division of the Budget, Enacted Budget Financial Plan (annual editions for 2017 and 2018), New York State Division of the Budget, Executive Budget Financial Plan (2018), and Office of the New York State Comptroller, Report on the Enacted Budget (annual editions for 2017 to 2018).

Conclusion

Governor Cuomo has been rigorous and effective in constraining State spending growth, achieving more fiscally responsible results than those of his predecessors. After taking office in the shadows of the Great Recession, the Governor and Legislature imposed a global Medicaid cap, reformed employee health insurance contributions, and created a Tier VI retirement cohort. However, when describing the State’s financial choices, the fairest portrayal of spending growth should be utilized by adjusting for payment timing differences and accounting changes. The Governor should not undermine transparency in order to make his significant accomplishments fit an artificial spending growth cap.

By David Friedfel

Footnotes

In contrast spending from the General Fund misses billions of dollars of State spending from special revenue accounts; All Funds spending includes federal dollars that supplement State spending; and capital investments are best assessed over a longer time frame.

There are valid reasons for prepaying debt, but State spending trends should be adjusted accordingly so that decisions on the timing of payments do not artificially impact perceptions of spending growth.

The STAR property tax benefit is provided by a personal income tax (PIT) credit for new enrollees; existing participants still receive the property tax exemption, and their benefits count as a state operating expense. As STAR recipients move, more people will shift from the property tax exemption to the PIT benefit, lowering state operating spending each year by almost $100 million annually for many years to come.